Defaulted student loan

September 21, 2012 23:47 by Consumer Ed

Dear Consumer Ed: 

I have paid on a defaulted student loan for three years, but it is not reflected on my credit report.  The collection agency is requesting an additional $50 a month for a Rehabilitation Program in hopes that my loan will be purchased by another lender, this in addition to the $500 a month that is being garnished from my payroll check.  My payments so far total $13,585.47 with the collection company receiving $2,248.78.  My loan interest rate is 2.4% on one of the loans and 3.52% on the other; the collection agency is collecting 15%, and tells me that this will increase to 18.5% once a lender is found.  Is there any way I can have the garnishment removed, and am I still required to pay the collection agency even though my loan will be back with a lender?  If so, why would I still have to pay the collection agency if my loan is out of default?

Consumer Ed says: 

You should try to make regular payments on your loans on top of the money that is garnished from your payroll check every month.  While it’s wonderful that some of your loans have been paid off through wage garnishment, the loans will actually remain in default until you either pay them off in full, consolidate them through an approved lender, or complete a loan rehabilitation program.  If you remain in default, your credit report will not improve until the item expires, and your wages can be garnished until you’ve paid the rest of your loans in their entirety.

First, however, it’s important to confirm that your loans are from the U.S. Department of Education (DOE).  The most common loans people receive from the DoE are Direct Loans, FFEL Loans, or Perkins Loans.  If you’re not sure what type of loans you have, you can look them up through the National Student Loan Data System (www.nslds.ed.gov).  If you can’t find information about one or both of your loans on this system, your student loans are likely with a private lender.  You can find out more about some of the most popular private student loan programs by visiting www.finaid.org/loans/privatestudentloans.phtml/.
 
Based on the fact that your wages are being garnished and you’ve been encouraged to participate in a loan rehabilitation program, it sounds like your loans are from the DOE.  When a borrower goes into default, the DOE commonly hires specific collection agencies to collect those student loans (for a list of these agencies, visit www.myeddebt.com/borrower/myoptions_collectionAgencies).  The DOE (or collection agency hired to collect your loan) probably initiated the Administrative Wage Garnishment (AWG) process. Before any garnishment began, you should have received a notice of garnishment, giving you the opportunity to request a hearing before officially entering into AWG.  If you have any questions about this process you can either call 1-800-4-FED-AID, or visit https://www.myeddebt.com/borrower/.  Once selected for AWG, your employer is required to withhold up to 15% of your disposable pay. 
   
Loan rehabilitation is an option you should consider, because once you’ve completed this process, your default will permanently be removed from your credit report.  While the exact process varies depending on what type of loan you have, generally, you must make nine on-time monthly payments, and then the collection agency that is currently assigned your loan will sell it to a lender.  It’s important to note that involuntary payments, such as wage garnishments, don’t count towards completion of the rehabilitation process.  (This would also be why you haven’t seen these payments reflected on your credit report.)  Once you complete rehabilitation, you’ll no longer be in default, the default status will be removed from your credit report, and your employer will stop garnishing your wages. For more information about rehabilitation options, visit https://www.myeddebt.com/borrower/myoptions_rehabilitate.

Once you’re out of default, you’ll need to continue making payments to your new lender.  Your monthly payments after rehabilitation might be more than what you paid during the rehabilitation period, in part because collection costs and interest that were outstanding at the time of rehabilitation may be added onto the total amount that you owe. 

If you’re having problems with the collection agency handling your default, you should file complaints with the Department of Education, the collection agency, and with the Office of the Inspector General.  To file a written complaint with the Department of Education, you should send a letter and copies of any communications between you and the collection agency to:
   
    Chief of Contract Analysis and Compliance
    US Department of Education
    61 Forsyth Street, SW 19T89
    Atlanta, GA 30303

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How can I tell if an online lender is legit?

November 16, 2011 17:25 by Consumer Ed

Dear Consumer Ed: 

I applied for a $10,000 loan online.  I provided my Social Security Number and bank account information for the credit check. The company wants me to pay $1,200 up front (via wire transfer) to secure the loan.  They have a really good explanation for why they need the money up front, and I really want to send it, but I am afraid it might be a scam. How can I tell if a lender is trustworthy or not? 

Consumer Ed says: 

You are right to be concerned about this company and its request. Legitimate loan companies do not generally charge an upfront fee for a loan. Instead, they simply deduct any loan fees from the amount borrowed once the loan has been approved.  Another red flag is presented when a company asks you to pay via wire transfer. Scammers love wire transfers because they are hard to trace and it's practically impossible to get your money back once you have wired cash.
 
You should make sure the company has a legitimate street address and phone number. Avoid companies who use a post office box as their corporate address or who can only be reached by leaving a message on an answering machine or with a call-center operator. Companies who guarantee loans to anyone, regardless of their credit history, are typically scammers.
 
A good way to find a reputable loan company is to ask trusted friends or family members for a recommendation. You should also check the reputation of a company through the Better Business Bureau (www.bbb.org).  In addition, you can check with the city or county in which the company is located to verify that it has a valid business license. 
 
Don't provide your Social Security Number or financial account information to a company unless you first have determined that the business is reputable.  If you believe you have provided such information to a scammer, you should inform your bank or credit card company and request that they close down your account and set up a new one. In addition, you should consider putting a security freeze on your credit reports so that the scammer cannot open up a new account in your name.  To do so, contact each of the three credit bureaus:
 
          Equifax:  1-800-525-6285; www.equifax.com 
          Experian:  1-888- 397-3742; www.experian.com     
          TransUnion: 1-800-680-7289; www.transunion.com

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Financing company won't stop harassing me about old car loan

September 1, 2011 19:02 by Consumer Ed

Dear Consumer Ed:   
 
A financing company is harassing me about an old loan on a car I voluntarily surrendered.  I've been paying them $75 a month to stay off my back, but they are relentless.  How do I make them leave me alone?  

Consumer Ed says: 

First, it is important to understand the repercussions of voluntarily surrendering your car to the dealer or financial institution that carries your loan. The owner of your loan will sell your car at auction for what is often much less than what it would bring at a retail sale. You may be faced with large fees as well.  After your car is surrendered and sold, you become responsible for the difference between the amount you owed on your loan at the time the car was surrendered, plus fees, minus the amount for which the car sold at auction.  What happens is that you are now paying for a car that you can no longer drive and will never own.
 
Because you have had a prior business relationship with this financing company, calls are still permitted by the company even if you have your telephone number added to the "do not call" database.  If it is a debt collector who is calling on behalf of your financing company, the Fair Debt Collection Practices Act ("FDCPA") may apply.  The FDCPA does not apply to a creditor collecting its own past-due accounts; so, if the company calling you is the company that lent the money to you, the FDCPA does not apply.  However, if the company is using a third-party debt collector to contact you, you have the right to request that they not contact you again.  This request must be in writing.  Make sure to include a statement that your letter is not meant in any way to acknowledge that you owe this or any other sum of money.  Mail your letter certified, requesting a return receipt so that you have proof of its delivery.  Once the agency receives your letter, its employees can only contact you one more time to explain what action they plan to take.  After that, they must not contact you.
 
You can also request that a collection agency not call you at your place of work.  Send the same type of letter discussed above and instruct the debt collector to refrain from contacting you at work.  By law, the debt collector must comply.  Remember, though, stopping the contact does not stop the debt-collection activities.  The debt collector can still send negative information to the credit-reporting agencies, sue you in court, and garnish your wages or file a lien against your property once a judgment is issued by the court.

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